Leading states have designed new ways to help utilities fight climate change

(ACEEE blog, 5 Feb 2020) To control costs and fight climate change, US states are coming up with innovative ways to flexibly manage demand for energy use.

New research from ACEEE and Energy Innovation finds that at least 13 states have created performance incentive mechanisms (PIM) to encourage utilities to deliver energy savings at specific times to optimize the nation’s power grid. This approach reduces emissions and allows utilities to incorporate more renewable power into the grid.

Demand reduction: key to lowering costs and emissions

Energy efficiency and demand response are essential tools to drive down the cost and greenhouse gas (GHG) emissions of electricity systems affordably and rapidly. These services can reduce demand at specific times to optimize the power grid, which we call “strategic demand reduction” (SDR). SDR reduces the cost to serve electricity customers by displacing the need for services traditionally provided by supply options, including substations, wires, and power plants.

Despite clear evidence of SDR’s value, utilities are just beginning to integrate it into their grid planning, investments, and operations (potential studies for demand flexibility and energy efficiency show vast untapped potential). One reason is that utility business models do not encourage SDR, because they depend on increasing capital investment to drive shareholder returns. Because SDR is often less expensive than traditional supply-side alternatives, it can forestall investment in resources that shareholders depend on for continued growth. Another challenge is the reduced electricity sales that result from energy efficiency, one option for delivering SDR.

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ACEEE blog, 5 Feb 2020: Leading states have designed new ways to help utilities fight climate change